FTSE 100 heavyweight might endure twin analyst ratings decrease from City firms
Revamped Forecasts for Auto Trader Take a Turn for the Worse
The fortunes of Auto Trader, a major player in the automotive online marketplace, have taken a hit as two City brokers have lowered their forecasts, following the company's lackluster financial results. Here's the lowdown on recent financial predictions, the factors behind the downgrade, and the ongoing impact on Auto Trader's prospects.
Current Financial Predictions
In the fiscal year ending March 2025, Auto Trader posted a 5% revenue surge, exceeding £600 million, and a 8% leap in operating profit, amounting to £376.8 million [2]. For the full year 2026, the company has revised the revenue growth target for retailers to be between 5% and 7% [2]. Whilst the company expects a growth spurt in the second half of 2026, setting the stage for the early phases of the full-year 2027 [2].
The Downgrade Factors
- Braking Growth: Auto Trader's growth has shown signs of deceleration, with a 5% revenue increase in the latest year – a stark contrast from the 14% growth the previous year [2]. Operating profit also slowed to an 8% climb from a robust 26% increase previously [2].
- Reduced Ad Demand: The strong used car market has resulted in supply falling short of demand. This scenario has led retailers to have less need to invest in advertising slots from Auto Trader, affecting the company's income [2][4].
- Analyst Age of Doubt: Two City broker analysts have cut their forecasts due to these factors, expressing worries about the swift selling speed in the used car market that may hamper short-term growth [1][4].
- Net Cash Forecasts: The downgrade has also impacted net cash forecasts, adding to the overall bearish outlook [4].
The used car market has presented a mixed bag for Auto Trader as it grapples with 'headwinds to non-core revenue lines' [3]. However, the good news is that the market is developing in a favorable direction with the influx of one-to-three-year-old cars soon entering the three-to-four-year-old car category - prevalent on dealer forecourts [3]. Yet, this dynamic has resulted in Auto Trader's stock price dropping more than 11% last Thursday after its full-year results showed a moderate 5% increase in average revenue per retailer during the last fiscal year [3].
Auto Trader's predicament has been exacerbated by logistical issues as cars are often selling too quickly on the forecourt, reducing the need for retailers to buy advertising from Auto Trader [3]. Moreover, independent garages have raised concerns about feeling pressured by the company, potentially threatening revenue [3].
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The lowered financial predictions for Auto Trader have been influenced by the slowing growth in the automotive industry, as well as reduced ad demand in the finance sector, which has impacted the company's revenue. Furthermore, the rapid selling speed in the used car market, combined with logistical issues in transportation, have added to the downward pressure on Auto Trader's prospects.
